BOJ Announces Even Tighter Monetary Policy

May 20, 2022

In its effort to contain the liquidity expansion of the Jamaican dollar and maintain the health of the foreign exchange market, the Bank of Jamaica (BOJ) took the decision to increase the policy interest rate by 50 basis points (bps) to 5% per annum, effective 20 May 2022 among other measures. The BOJ’s strong international reserves strengthens its ability to support the foreign exchange market as needed.

The decisions of the BOJ remain geared toward reducing the effects of the ongoing and prolonged commodity price shock to inflation and bringing inflation to the target range over the shortest possible period. At April 2022, inflation was 11.8%, which was higher than the outturn of March 2022 and represented the ninth consecutive month that inflation continued above the BOJ’s target range of 4% to 6%. Despite the expected rise in inflation over the next two months, the BOJ projects a decline in the latter half of the year, in keeping with the expected decline in commodity prices. The public should therefore realize lower inflation rates each month, beginning in the second half of 2022, assuming the Russia-Ukraine tension does not worsen and inflation among Jamaica’s trading partners falls.

The current decisions of the BOJ signify a cumulative hike in the policy rate of 450 bps since October 2021, which has brought the policy rate close to the level deemed appropriate by the Monetary Policy Committee (MPC). The BOJ, since October 2021 to date, sold approximately US$552 million to the foreign exchange market, which represents more than twice the amount sold for the corresponding period last year. Additionally, the Net Open Position limits for deposit-taking institutions (DTIs) was adjusted by the BOJ. These policy actions were contributors of maintaining the stability in the foreign exchange market and led DTIs to start adjusting interest rates on deposits and loans. The MPC stated that policy decisions were being made in a period of high uncertainty and that future decisions will be subject to incoming data materializing as expected.

The measures should lead to interest rates on deposits and loans rising further, causing saving in Jamaican dollars more attractive relative to foreign currency assets and borrowing in Jamaican dollars more expensive. They are also expected to reduce the foreign currency demand, leading to a relatively more stable exchange rate; cause a fall in demand, in the economy and, consequently, limit the ability of businesses to impose price increases to consumers.

The factors influencing the monetary policy decision will be discussed at the Bank’s Monetary Policy Press Briefing, scheduled for Tuesday, 24 May 2022 at 10:00 am.

The next policy decision announcement will be on June 29, 2022.


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